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Bill L.
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Methodology: setups require certain criteria to be met before trades can be executed, which include weighted statistical studies on several indicators of price, breadth, volume, and sentiment . Amount of risk taken is proportional to how many indicators are aligned. I mainly trade market... More
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  • Thursday Morning, August 16, 2012 - Short Term Update 2 comments
    Aug 16, 2012 1:31 AM | about stocks: SPY, DIA, QQQ, TLT, JJC, FXE, UUP

    Bottom Line:

    The market has been in a range for almost two weeks now. The price action in the secondary indexes as well as the position of the indicators argue against further gains, but they've failed thus far to produce the decline I've been looking for. Furthermore, if the cyclical indexes start leading, it could result in a much more prolonged push to the upside as money rotates out of defensive sectors. It's not clear yet that this is happening, but there is some evidence to support this.

    Indicators:

    • Bullish: 1/20
    • Neutral: 9/20
    • Bearish: 10/20

    Examples:

    % of Stocks Above their 20 DMA:

    (click to enlarge)

    Notes: Nearly overbought, this could also be interpreted as a bearish divergence going back to early July.

    NYSE McClellan Oscillator:

    (click to enlarge)

    Notes: While it's possible to still read this as a bearish divergence, it becomes less and less likely as more time passes. There is currently a bearish MA cross over, though these signals tend to only really be reliable when they occur in the "overbought" or "oversold" range.

    NYSE New Highs-Lows:

    (click to enlarge)

    Notes: New highs-lows continues to diverge, indicating that each push to the upside is occurring with fewer and fewer new highs, and/or with more new lows. This could be a sign of the rally exhausting as money is flowing less freely into the broad array of stocks, and is instead focusing more on the large blue chip names that dominate the indexes.

    NYSE Advance-Decline Line:

    (click to enlarge)

    Notes: The 5 DMA has come very close to an overbought reading, but is falling back to the "neutral" area.

    NYSE Up-Down Volume:

    (click to enlarge)

    Notes: Similar, though not quite reaching the same height.

    NYSE TICK:

    (click to enlarge)

    Notes: Overbought.

    NYSE TRIN:

    (click to enlarge)

    Notes: One of the more overbought readings in the last few months.

    Put/Call Ratio:

    (click to enlarge)

    Notes: Very little fear in this market, as well as compressing volatility. Complacent low volatility periods are almost always followed by high volatility fearful periods.

    Update, Price Action:

    DJI:

    (click to enlarge)

    Notes: Stuck in a range for the last several days.

    DJT:

    (click to enlarge)

    Notes: The last few days were significant in that the transport index was finally able to produce a higher pivot high.

    DJU:

    (click to enlarge)

    Notes: The defensive utilities sector on the other hand is losing steam.

    JJC:

    (click to enlarge)

    Notes: Copper is back near it previous lows.

    $CYC/DEF:

    (click to enlarge)

    Notes: An example of the offensive/defense ratio perhaps starting to break out.

    Summary:

    It's a mixed picture. While the cyclical indexes and the transports still look far weaker overall than the primary indexes, in the last week their performance has improved. This could be a head fake, tricking investors to finally "get back in" the game, or it could be the start of a major rotation back into risk.

    My interpretation at the moment favors the "head fake" scenario, seeing as how the market is overbought, with declining momentum, and general mood of complacency. That is not a recipe for a big bull move. That said, I still need to see price action confirm a down move, which we have not gotten. A good first start would be for the SPX to take out 1395, which has played as support multiple times.

    -Bill L.

    Stocks: SPY, DIA, QQQ, TLT, JJC, FXE, UUP
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Comments (2)
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  • Bill - many thanks for finding the time to update the blog. Congratulations again on nailing the market direction again since two weeks ago! Interestingly, now that I have my "ingenious" :) long position it helps me look at the market in a more objective way. I was also thinking about last August's market drop... The landscape in US Treasuries was much different (basically higher interest rates than now) and so investors/speculators could dump their stock holdings more easily and embrace US treasuries hoping for gains there. This kind of move doesn't seem so obvious now even though the interest rates have gone up somewhat. I don't know if you think that may have something to with the most recent market resilience.
    16 Aug 2012, 10:46 AM Reply Like
  • Hi Bill. Will you be able to update the market technicals anytime soon, by any chance? Hope your exam prep is going well.
    21 Aug 2012, 01:11 PM Reply Like
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